San Antonio-based
The $49 billion-asset company, which operates as Frost Bank, said its second quarter average loans increased 3% from the prior quarter to $19.7 billion. The growth came as other regional banks struggled to develop new business. Federal Reserve data showed flat lending levels for large banks in the first half of the year.
Cullen/Frost said it grew loans across consumer lines, including mortgages, while advances in business lending were driven by commercial-and-industrial credits and borrowing from expanding energy companies.
"About 80% of it was from C&I and energy," Chairman and CEO Phillip Green said Thursday during the company's earnings call.
"We had a really good quarter on energy this time, some really well-underwritten deals, good structures and good relationships," Green added. "So it was just good activity. Our people are working hard. … Things are just going well, to be honest."
Oil and gas markets struggled in the immediate aftermath of the pandemic when stalled economic activity and travel dampened demand for fuels. But a swift U.S. economic rebound, followed by Russia's invasion of Ukraine, ramped up demand for American oil and gas. In protest of the war, Europe shifted its demand for oil and gas imports away from Russia and toward the U.S. American producers responded with record levels of oil and natural gas production in 2023 and again earlier this year.
Companies continue to invest in growth, with several new liquefied natural gas export facilities under construction on the Texas coast. This could double gas export levels by the end of the decade, according to the Department of Energy.
On the C&I front, Cullen/Frost said it is seeing broad-based growth and market share gains that are increasingly bolstered by ongoing expansions in Houston, Dallas and Austin — all among the fastest growing major markets in the country. With no personal state income taxes, the Lone Star State's big cities are attracting residents and businesses away from high-cost states such as New York and California, said Mike Matousek, head trader at U.S. Global Investors in San Antonio.
"There's a lot going on in Texas — energy, yes, but all the big markets are growing and diversifying," Matousek said.
Dan Geddes, a regional president who is in line to become Cullen/Frost's next chief financial officer when current CFO Jerry Salinas retires at the end of the year, said he sees a long runway for growth ahead. He said the bank is exceeding its loan targets across its market expansions in Houston, Dallas and Austin.
"We have the first three locations in our Austin expansion project opened with several more planned to open before the end of this year," Geddes said. "At the end of the second quarter, our overall expansion efforts have generated $2.2 billion in deposits, $1.5 billion in loans and added 50,783 new households.
"Since we began the expansion five years ago, we have added 58 locations to our branch network … or about one new location every month," he added on the earnings call. "Those 58 locations now represent 30% of our entire branch network across Texas. The expansion branches are growing at an impressive rate and becoming a more meaningful part of Cullen/Frost.
"For the second quarter, growth in average loans and deposits in the expansion branches were up an annualized 9% linked quarter, and both average loans and deposits were up 47% year over year," Geddes said.
Overall for the second quarter, average deposits decreased slightly from the prior quarter — by 0.5% — to $40.5 billion, as noninterest-bearing deposits declined 2% and interest-bearing deposits were flat. This resulted in deposit costs rising 4 basis points to 1.58%. But loan yields rose by 8 basis points to 7.08% and, combined with increased volume, bolstered the bank's net interest income by 1.5% quarter over quarter to $417.6 million.
Cullen/Frost's net interest margin of 3.54% was up 6 basis points from the first quarter.
The bank said credit quality was healthy and stable. Nonperforming assets totaled $75 million at the end of the second quarter, compared with $72 million the prior quarter and $69 million a year earlier. The quarter-end figure represented 38 basis points of period-end loans and 15 basis points of total assets.
Cullen/Frost reported second-quarter net income of $145.5 million, or $2.21 per share, up from $135.7 million, or $2.06, the prior quarter.
